Lumpy investments, factor adjustments, and labour productivity

This paper describes firms’ output and factor demandsbefore, during, and after episodes of lumpy investment. By usinga rich employer–employee panel data set for two manufacturingindustries and one service industry, we focus on simultaneousvariations in output, capital, materials, man hours, labourproductivity, and the skill composition and hourly cost of labour.Investment spikes are followed by roughly proportional changesin sales, labour, and materials, and significant increases incapital intensity. The changes in labour productivity that areassociated with the investment spikes are small, which indicatesthat productivity improvements are not related to instantaneoustechnological change through investment spikes. Focusing onsectoral differences, capital adjustments are found to be smootherin the service industry than in the two manufacturing industrieswhich may be related to differences in labour intensities betweenthe industries.